BCOM 1st Year Final Accounts Manufacturing Account Long Study Material Notes
BCOM 1st Year Final Accounts Manufacturing Account Long Study Material Notes :- In this post you will get full information related to BCOM Final accounts; Manufacturing account, Trading account, Profit And Loss Account, Balance Sheet, Adjustment entries, All notes Study Material Sample Model Practice Paper Examination Paper here you will find all the questions of BCOM 1st Year This website parultech.com is very helpful for all students.
LONG ANSWER QUESTIONS
0.1. What is meant by final accounts? Why is balance sheet included in final accounts, when in fact it is a statement not an account?
Ans. Final Accounts: In order to find out profit or loss and to know the financial positions of the business at the end of the financial year or at the end of a prescribed period, financial statements are prepared for reporting to user of accounting for decision making. These financial statements are Prepared with an adjective to focus on the financial results of operation of business during the period under consideration and financial position at the end of period. The financial statement prepared for under consideration this purpose is termed as ‘Final Accounts! Final accounts refer to preparation of trading account, profit a loss account and balance sheet. Balance sheet is a statement but even then it is included in final accounts because of the following:
1. Final balances of all the accounts of the ledger are found out. These balances are transferred from trial balance. From trial balance some balances are transferred to trading account while some are transferred to profit & loss account and remaining balances are transferred to balance sheet. As all these three, namely trading, profit & loss accounts and balance sheet contain final balances of all the accounts of ledger, they are called financial accounts.
2. As trading, profit & loss accounts and balance sheet constitute the final state of accountancy, hence, they are called final accounts.
This account is prepared to find out gross profit or gross loss on the basis of purchases and sales. From the sales of a specific period (mostly of one year), the cost of sales (of the same period) is deducted and the balance is treated as gross profit.
Cost of goods sold or cost of sales = Opening stock + Purchases + All direct expenses.
The trading account is a nominal account and is closed by transferred gross profit or loss to profit & loss account.
Refer to Section-A, Q.1.
Profit & Loss Account
Profit & loss account is prepared to find out net profit and net loss. All those expenses and losses, incomes and gains are not recorded in trading account but they are recorded in profit & loss account.
1. Items of Debit Side of Profit & Loss Account: Following items are recorded in the debit side of profit & loss account:
(a) Financial Expenses: It includes the following:
(i) Interest on loan,
(ii) Discount allowed,
(iii) Interest on capital,
(iv) Bad debts,
(v) Discount on bills discounted,
(vi) Bank expenses, and
(vii) Charity in cash, etc.
(b) Management Expenses: It includes the following:
(i) Salaries to employees,
(ii) Printing and stationery,
(iii) Office rent,
(iv) Postage and telegram expenses,
(v) Lighting expenses of office,
(vi) Trade expenses,
(vii) Audit fees,
(viii) Directors’ fees,
(ix) Operating expenses of office,
(x) Insurance and taxes,
(xi) Stable expenses,
(xiii) Shop rent,
(xiv) Ordinary expenses,
(xv) Law charges,
(xvi) Subscriptions to trade committees,
(xvii) Telephone expenses, etc.
(c) Sales and Distribution Expenses: It includes the following:
(1) Carriage outward,
(ii) Advertisement expenses,
(iii) Export duty,
(iv) Commission to sales agent,
(v) Salaries to sales agent,
(vi) Insurance of goods sold,
(vii) Packing expenses,
(viii) Expenses on carriage used for sending goods which are sold,
(ix) Remuneration to agents.
(d) Other Expenses: It includes depreciation and other losses and expenses which are indirect in character.
Some typical items are:
(i) Wages and salaries,
(ii) Income tax,
(iv) Unproductive wages,
(v) Life insurance premium,
(viii) Rent and rates,
2. Items of Credit Side of Profit & Loss Account: Following items are recorded in the credit side of P&L account:
(a) Gross profit,
(b) Commission received,
(c) Discount received,
(d) Interest on investment,
(e) Interest on bank deposits,
(f) Profit on sales of goods on consignment and any other profit of similar nature,
(g) Interest on drawings,
(h) Rent received,
(i) Bad debts recovered or any amount recovered which was previously written off,
(j) Profit on joint venture,
(k) Rent of sub-letting,
(l) One year’s apprenticeship premium received, etc.
(m) Bonus received from suppliers,
(n) Profit on sale of investment,
(o). Profit on sale of other assets,
(p) Rebate received, etc.
“Trade Discount: If it is given in trial balance, it is deducted from purchases or sales to which it relates, but the fact is that it will not be given in trial balance because it is deducted from purchases and sales at time of purchases and sales.
Depreciation on Addition of Assets: If the date of addition of assets is not given, depreciation on such addition of assets may be ignored.
Depreciation on Sales of Assets: If the date of sale of asset is not given, depreciation on such addition of asset may be ignored.
Interest on Loan: If loan along with rate of interest is given in the trial balance, then interest on this loan is calculated at the given rate. If interest so calculated is more than the amount of interest given in the trial balance, excess interest is treated as adjustment and is therefore recorded in the credit side of profit & loss account and liability side of balance sheet. If no interest is treated as adjustment, it is known as implied adjustment.
Balance Sheet: Balance sheet is a statement which represents financial position of a business at a prescribed date. This prescribed date is the date at which final accounts are prepared. Some persons are of the view that balance sheet is a statement of assets and liabilities of business at a particular date. t is a sheet of balances which means that at the end of the year all accounts of ledger are closed and the balances of nominal accounts are transferred to trading account or profit & loss account but there are personal and real accounts whose balances are carried forward, these balances are recorded in a statement which is called balance sheet.
Interest on Deposit: If deposit along with rate of interest is given in the trial balance, interest on such deposit is calculated. If this interest is more than interest on deposit given in the trial balance excess of such interest is treated as adjustment and is recorded in the credit side of profit & loss account and asset side of balance sheet. If no interest on deposit is given in the trial balance, then whole On this calculated interest is treated as adiustment. It is regarded as implied adjustment.
Horoscope of the Balance Sheet: Just as horoscope of a person helps in knowing his past and present and assessing his future, in the same way, balance sheet helps in knowing past and present Tinancial position of an enterprise. It also assists in assessing the future of an enterprise’s financial position, hence, balance sheet may be easily called the horoscope of the business concern.
Q.2. Discuss about assets, liabilities and adjustments.
Or Distinguish between fixed assets and current assets.
Ans. Assets: An asset is something which benefits the future. Those economic resources which are owned by the proprietor identified and measured in money are assets of the proprietor e.g. land, building, plant and machinery, etc.
Classification of Assets: These are as follows:
1. Fixed Assets: These assets refer to the assets of permanent character. They are acquired with a view that they will help in business year after year. Any asset which is acquired for permanent use is a fixed asset. Examples are land, building, etc. but these are not fixed assets for those who acquire them for selling and not for permanent use. For example, if a person’s business is to purchase and sell machinery, then machinery is not a fixed asset for him.
Fixed asset may be tangible or intangible. Tangible assets are those which have existence, i.e. they can be seen, touched and felt like buildings and machinery, etc. while intangible assets are such which cannot be seen and touched though they have a definite value, like goodwill, etc. According to schedule VI of the Companies Act, 1956, these tangible and intangible assets have been treated as fixed assets and in the list of fixed assets of this schedule, goodwill occupies the first position.